3 Reasons Why Your Loan EMI Feels Too High

Why does your EMI feel like a burden every single month? You're not alone if you feel like your loan EMI is eating up more than it should. 

Many Indian borrowers are stuck with monthly payments that look okay on paper but pinch hard when the salary hits the bank. Even when the Reserve Bank cuts interest rates, your EMI often stays high. But why?

This blog will explain without jargon, using facts, examples, and real numbers. We will explore what makes your EMI feel heavy and what you can do about it.

The Invisible Trap: How Interest Rate Transmission Works

Banks don’t reduce your EMI just because the RBI cuts repo rates. That’s the bitter truth. Indian banks follow two lending rate structures: MCLR (Marginal Cost of Lending Rate) and EBLR (e.g., from 6.5% to 6.25%). Repo rate affects EBLR faster than MCLR, but the trick lies in how quickly your bank updates your interest.

Often, they don’t.

Also Read  - Personal Loan EMI Too High? Here’s How to Lower It Fast in 2025

Even when the RBI cuts the repo rate, the full benefit may take 3–6 months to reflect in your EMI. And if your loan is on a fixed rate, you won’t see any change. Banks also keep a margin over the repo, meaning your actual loan rate could still be around 8.5% to 10%.

Example:

This gap might not look huge, but over the years it piles up. Let’s say you have a 20-year home loan. That ₹1,700 per month is ₹4,08,000 saved in total.

Banks are slow to transmit benefits, so your EMI stays where it is, sometimes even increasing.

Tenure Game: The Illusion of Lower EMIs

Suppose your bank offers to keep your EMI unchanged when the interest rate increases. That sounds nice. Less impact on your monthly budget.

But the catch? They extend your loan tenure.

You might pay for 25 years instead of 20. The interest adds up in silence.

You saved ₹2,987 per month but ended up paying ₶14,00,000 more over 25 years.

This is how banks keep EMIs stable and profits flowing.

Shorter tenure = less interest. Always choose higher EMI if you can. Lower EMI doesn’t mean cheaper loan.

Read More – Best Strategies to Reduce Your Loan EMI in 2025

Loan Type & Rate Type: The Silent Thief

Different loan types have different rules. Home loans usually offer floating rates. Personal loans and auto loans are often fixed.

If you took a fixed-rate loan 2 years ago at 12.5%, your rate stays the same. Even if repo drops. That’s bad.

Personal loans from NBFCs or fintechs can charge 14% to 24%. Banks may offer 10.5% to 13.5%. But due to easy approval, people pick higher interest ones.

Your choice of loan type matters a lot.

Also, if your CIBIL score is below 700, you may get a loan but at 2% or 3% extra. That silently increases your EMI burden.

What Can You Do To Fix This?
 

1. Switch to EBLR-linked loans If your current loan is on MCLR or fixed, try converting to EBLR. Most banks allow this. It usually costs 0.25% conversion fee.
    
2. Prepay smartly Even paying ₹5,00,000 early can reduce your total interest by ₹20,00,000 in a 20-year home loan.
    
3. Negotiate the spread Lenders put their profit margin over repo. You can bargain this if your CIBIL is strong. Ask them directly to reduce it.
    
4. Avoid loan top-ups Don’t fall for easy cash offers. These extend your tenure further and increase interest cost.
    
5. Keep EMI same when rates fall Never reduce EMI. Reduce tenure instead. That saves lakhs.

Final Thoughts

Loan EMIs don’t just depend on how much you borrow. They depend on how smartly you manage your rate, tenure, and structure. Banks design EMIs to look attractive but often hide the long-term cost.

Always read the terms and ask questions. A loan is a 15 to 20-year relationship with a bank. You wouldn’t marry without knowing the person, and you shouldn’t sign a loan without understanding it, either.

EMIs can be controlled. But only when you take charge.

FAQs

1. Why does my EMI not reduce when the RBI cuts the repo rate?
Banks don’t pass the rate cut immediately. Also, your loan may be fixed-rate or on an old MCLR system, so it stays the same.

2. Is it good to increase the EMI amount when the interest drops?
Yes. If you keep the EMI the same, the bank will reduce the tenure, which will save you a lot of interest over time.

3. Should I prepay my loan or invest the money?
If your loan interest is higher than your investment earns post-tax, then prepaying is better.

4. Is switching to an EBLR loan beneficial?
Yes, especially when repo rates fall. Your loan rate will adjust faster than MCLR or base rate loans.

5. How can I reduce my EMI legally?
You can refinance, negotiate with your bank, or switch to lower-rate loans. You can also improve your CIBIL to get better offers.
 

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LoansJagat Team

We are a team of writers, editors, and proofreaders with 15+ years of experience in the finance field. We are your personal finance gurus! But, we will explain everything in simplified language. Our aim is to make personal and business finance easier for you. While we help you upgrade your financial knowledge, why don't you read some of our blogs?